Issues Facing Landlords

The Impact of Section 24 Tax Changes

Section 24 of the Finance (No. 2) Act 2015 — often referred to as the "tenant tax" — fundamentally changed how landlords are taxed on their rental income. Phased in between 2017 and 2020, it removed the ability of individual landlords to deduct finance costs, most notably mortgage interest, from their rental income before calculating tax.

What changed

Before Section 24, a landlord could deduct mortgage interest as a business expense, paying tax only on their profit after those costs. Under the new rules, finance costs are no longer an allowable deduction. Instead, landlords receive a basic-rate (20%) tax credit on those costs. For higher and additional-rate taxpayers, this means tax is effectively charged on revenue rather than profit.

Why it matters

The change pushes many landlords into a higher tax bracket because the full rental income — not the post-interest profit — is now used to calculate taxable income. The practical consequences include:

• Higher tax bills, even where actual profit has not increased.
• Some landlords with highly leveraged properties now making a loss after tax.
• Being pushed into the higher-rate band, affecting child benefit and personal allowance.
• Reduced returns that no longer justify the risk and effort of letting.

The bigger picture

For landlords with mortgages, Section 24 has eroded what was once a dependable margin. Combined with rising interest rates, it has prompted many to reassess whether continuing to let is worthwhile — particularly those approaching retirement or holding properties that no longer generate a meaningful return.

The Implications for Landlords of the Renters' Rights Act

The Renters' Rights Act represents the most significant overhaul of the private rented sector in decades. Building on the earlier Renters (Reform) Bill, it rebalances the relationship between landlords and tenants and introduces obligations that change how tenancies are created, managed, and ended.

Key changes for landlords

• Abolition of Section 21 "no-fault" evictions — landlords can no longer regain possession without providing a specified legal ground, changing how and when a property can be recovered.
• Move to periodic tenancies — fixed-term assured shorthold tenancies are replaced by open-ended periodic tenancies, giving tenants greater security and flexibility to leave.
• Strengthened possession grounds — revised Section 8 grounds aim to cover legitimate reasons such as selling the property or moving in, but typically require longer notice and evidence.
• Decent Homes Standard — the private sector becomes subject to minimum quality standards already applied to social housing.
• Restrictions on rent increases and bidding — limits on how often and by how much rent can rise, with a route for tenants to challenge above-market increases.
• A landlord database and ombudsman — new registration requirements and a mandatory redress scheme increase compliance and administrative burden.

What it means in practice

For compliant, long-term landlords, many of the changes formalise good practice. But the cumulative effect is greater administration, reduced flexibility, and a longer, more evidence-driven process to regain possession. Landlords who need to sell, move back in, or respond quickly to rent arrears may find the new framework more demanding to navigate.

Weighing up the future

Taken together with Section 24 and a higher-cost borrowing environment, the Renters' Rights Act is prompting many landlords to question whether the returns still justify the responsibilities. For some, the answer is to adapt and continue; for others, it is a clear signal that now is the right time to sell.